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Month: September 2012

Thinking of a Vacation or Retirement Home? Buy It Now

by The KCM Crew on September 19, 2012 · 0 commentsWhen the economy was exploding in the early 2000s, many of us began to dream about purchasing that vacation home on the lake or securing a home in a more appropriate location for our retirement years. However, with the booming economy came skyrocketing house prices. Many of the homes we fell in love with quickly became out of reach financially. Perhaps we should take a second look at these same homes today.

With prices dropping by over 30% in some markets and with interest rates at historic lows, this may be the perfect time to do what we and our families have always dreamt of doing – buying that second home. Let’s look at the numbers.

Back in 2006 we may have seen the ‘perfect’ home but the $500,000 price tag was just out of reach. Today, we could probably get that home for $400,000 (if not less). We also would be financing it at the current mortgage rate instead of the rates available six years ago. The table below shows the difference in impact on our family’s finances:

Not every family is in the financial position to take advantage of the tremendous opportunities the current real estate market offers. But, if yours is, this may be the time for dreams to come true.

Fed Chairman Ben Bernanke announced last week that the Fed would again be pumping money into mortgage-backed-securities as a way to stimulate the economy. The big question for us becomes what impact this will have on the housing market. There is absolutely no doubt that Bernanke had the housing industry in mind while making this decision. In his post meeting news conference Bernanke explained:

“I think that house prices are beginning to rise in some markets, which will encourage people to look at homes, will encourage lenders to make more mortgage loans. I am hoping we will continue to see progress in the housing market. That is one of the missing pistons in the engine here, housing is usually a big part of a recovery process. We haven’t had that nearly to the usual extent. And to the extent that we can support housing I think that would be a very useful outcome.”

How does keeping rates low help the market?

HSH Associates which reports on trends in the mortgage rate environment explains:

“Of all the Fed policies, driving down mortgage rates has arguably been the most successful. Low rates have fostered refinancing, putting money in homeowner pockets and helping to spur consumer spending. Those low rates have enhanced housing affordability, while the steadying aspect of the Fed’s presence in the market has allowed for more of those transactions to complete; in turn, this has helped to firm up home prices. The Fed is trying to cause at least some inflation, namely in asset prices — homes, stocks.”

But what impact will it actually have on home sales?

Keeping interest rates low will definitely help. However, we are not sure it will be a driving force in a housing recovery. Rates are already at historic lows and the challenge to many buyers is availability of mortgage money more than it is the cost of that money (rate). HSH Associates believes:

“Looking across the potential audiences who want to buy homes, can a claim be made that interest rates are an impediment? More likely, credit ruined in the downturn, a lack of income, unemployment or even asset strength are keeping people out of the market. In addition, there is arguably a cohort which cannot participate due to a foreclosure, short-sale or deed-in-lieu effected over the last few years, and there is likely still another group who will not buy a home at all, having watched family and friends suffer mightily with real estate issues and losses in the downturn. In this way, lower interest rates aren’t much of an inducement for a lot of folks, and except at the margins, the change merely enhances the opportunity for people already well-positioned and motivated to buy a home.”

Richard Green, director of the University of Southern California Lusk Center for Real Estate, echoed this sentiment in a recent MarketWatch article:

“While QE3 certainly won’t hurt the housing market, its short-term effect will likely be limited. The constraint that is keeping people out of the housing market is absence of equity. The drop in house prices means that many borrowers are underwater on their houses, and high unemployment has prevented potential first-time buyers from accumulating down payments.”

Keeping rates low can’t hurt the market and perhaps it will encourage some move-up buyers to make the move now. But few believe it will spur a dramatic increase in home sales.

Real Estate is local, very local. The following is a break down of Newton by zip code, 2011 vs. 2012 thus far. Please notice the price per square foot it is as important as could be in determining the price of a home. A seller cannot get caught up in what their neighbor’s house sold for. This price per square foot is also very indicative of condition.

Zip Units Average Sale Price Average Price SQ FT

02458 51 $954,000 $310.00

02458 49 $1086,000 $330.00

02459 154 $976,000 $345.00

02459 135 $997,000 $335.00

02460 25 $694,000 $333.00

02460 3 $806,000 $326.00

02461 58 $756,000 $331.00

02461 37 $683,000 $337.00

02462 16 $656,000 $346.00

02462 11 $780,000 $341.00

02464 14 $534,000 $286.00

02464 10 $573,000 $293.00

02465 88 $793,000 $329.00

02465 79 $1,051,000 $351.00

02467 24 $1,262,000 $380.00

02467 30 $1,396,000 $371.00

02468 31 $1,559,000 $366.00

02468 20 $1,790,000 $378.00

I am going to break these numbers down even further.

Chestnut Hill 02467 North of Rte.9

02467 13 $1,703,000 $422.00

02467 13 $1892,000 $430.00

Chestnut Hill South of Rte.9

02467 10 $813,000 $319.00

02467 17 $1,011,000 $315.00

It costs roughly $110.00 per square foot more to purchase a house north of Rte. 9 in the same zip code.

Same is true for West Newton, breaking out West Newton Hill

02465 24 $1,559,000 $420.00

02465 21 $1,790,000 $435.00

02465 73 $577,000 $305.00

02465 58 $691,000 $330.00

Again, it cost about $110.00 more per square foot to purchase on West Newton Hill.

I will now break down Newton Centre even further. Newton Centre encompasses a vast area. It stretches north slightly beyond Commonwealth Avenue, east to roughly Hobart, west to Walnut Street and south, as far as Brookline Avenue. I will separate out the immediate vicinity surround Newton Centre and walkable to the T and shops.

02459 50 $1,077,000 $378.00

02459 104 $918,000 $334.00

Or roughly $44.00 more per square foot the closer to Newton Centre proper you are.

I would love to discuss this further with anyone who is interested. 617-921-6860